Russia’s Defectors

Investors are pulling out of Russia in record numbers following the Russian invasion of Georgia this month, the Financial Times reports Friday. Citing Russian Central Bank data released Thursday, the FT says foreign currency reserves fell $16.8 billion in the week beginning Aug. 8, one of the largest pullouts since the Russian ruble collapse of 1998. Gennady Melikyan, the Central Bank’s deputy chairman, acknowledged it is the “political situation” that has triggered the mass capital flight. But, Melikyan cautioned, “I think we have come close to the bottom now.”

The FT, however, points out that the Russian stock market is down 6.5 percent since tanks started rolling in to Georgia and that the debt market, too, is going through wild fluctuations in price in the perceived political risk. The Russian newswire paints a rosier picture. “Russia’s net capital inflow to $30 bln in Jan.-July,” a headline in RIA Novosti reads, emphasizing Russia’s impressive prewar foreign investment record. The wire buries the poor August figures in the last paragraph.

Perhaps Russia can make up the difference in oil revenues. Yes, oil prices spiked again on Thursday, topping $121 a barrel. “Fears of a new cold war between Russia and the West” triggered the crude comeback, the Guardian says. The Houston Chronicle says it is Russia’s bellicose objections to a planned U.S.-Poland missile installation that has revived oil futures. Of course, the resurgent oil price forced the dollar down again, but the markets nudged higher on the strength of energy stocks, the New York Times points out.

This week’s rebound in oil prices, though, should not be misinterpreted as a sign of further economic pain, the NYT advises. “Analysts cautioned against reading too much into a single day’s session. The dollar has climbed to a six-month high against the euro. Oil prices have tumbled nearly 18 percent since reaching a record high on July 11,” the newspaper reports. Others see it differently. Expensive oil is here to stay, CNNMoney.com tells us. The oil bulls are back, grumbles Forbes. Any hope of oil dropping below $100? CNNMoney.com says don’t count on it. “Once you go down too low, you’ll shut down new production, and prices will go right back up,” Christopher Ruppel, an energy analyst tells CNNMoney.

The impact of inflation hits Americans more than their counterparts in Europe, a cringe-worthy report in the Wall Street Journal says. That is because in Europe, home to traditionally stronger unions, wages and salaries tend to follow the inflation rate more closely, as they did in the first quarter of this year, WSJ notes. Conversely, “in the U.S., where unions are weaker and wages aren’t often indexed to inflation, workers fell behind,” the WSJ says. U.S. salaries and wages increased 3.3 percent in Q1 this year while consumer prices jumped 4.1 percent, a higher disparity than in the euro zone. The lag could get worse as prices continue to rise in the United States. But before you pack your bags for Europe, please note: The European Union’s higher clout over wages can very easily have an inflationary effect of its own. There exists “the added danger in countries where wages are formally indexed to inflation … an inflationary spiral that’s hard to tamp down,” the WSJ adds.

The Industrial & Commercial Bank of China has been crowned “the most profitable bank in the world” after it blew away analysts’ estimates with a $9.4 billion first-half profit, the BBC reports. It beats out HSBC, which clocked in with a $7.7 billion net profit over the same period, the Beeb adds. ICBC is not alone in China. “Chinese banks are benefiting from little exposure to US sub-prime loans and the booming domestic economy,” BBC reports. The FT called ICBC a trendsetter for the rest of the Chinese banking sector, predicting “stellar profit growth is expected to be reported across the Chinese banking industry, with some smaller institutions preparing to announce profit jumps of as much as 150 percent.” Ah, but what’s this? Trouble so soon? On Friday morning, ICBC announced it’s short the funds needed to finance its aggressive expansion. The bank announced “it needs to issue up to 100 billion yuan ($14.6 billion) worth of bonds to boost its capital,” Forbes reports (with help from Reuters).